Arizona's sales-tax boost falls short in first month

by Alia Beard Rau - Sept. 4, 2010 12:00 AMThe Arizona Republic

Arizona's new 1 cent-per-dollar sales tax brought nearly $65 million into the state coffers during its first month.

The additional money boosted July 2010 general-fund revenue $49 million above what was collected last July but still fell short of projections. The state had expected $72 million from the sales-tax hike.

Gov. Jan Brewer, who championed the voter-approved tax, has consistently said it wouldn't be a "cure-all" for the state's budget problems but would "get us through."

But if revenues continue to fall short of predictions, tax opponents' claims that it may not even do that may come true.

The state has an ongoing gap between projected spending and tax collections of about $1.7 billion for the current fiscal year, which began in July. Supporters said the tax would bring an extra $1 billion its first year.

Tax foe Farrell Quinlan, state director of the National Federation of Independent Business, predicted in May that the tax would deter spending and raise closer to $862 million a year.

However, staff from the state's Joint Legislative Budget Committee said that annual number is expected to rise; in some cases, there is a 120-day exemption period for purchases made under contracts signed before the new tax went into effect.

Two-thirds of the money raised by the tax goes to primary and secondary education. The remaining third is split among public-safety and health-and-human-services programs.

Due to a lag for collection time, the state's July collection numbers are released in August but actually cover items bought by consumers in June. The sales tax hike went into effect June 1.

Overall for July, Arizona's general-fund revenue was below projections, primarily due to sales taxes. The state had expected to bring in $371million in sales-tax revenue including the extra 1-cent revenues and instead brought in $346 million.According to a financial report by the Joint Legislative Budget Committee, July was the second month of revenue declines to follow positive growth in April and May. Before those two positive months, there were more than two years of monthly declines.

"These latest collections may be evidence that the economic recovery may be slower than anticipated," the report states.

"It clearly slows that the economy is stumbling," he said. "Most of the blame belongs in Washington, D.C., because consumers and businesses are afraid to spend any money because of all the uncertainty regarding new taxes, new regulations and additional borrowing."

But Kavanagh said the sluggish sales-tax numbers are the least of the state's worries.

"Our major problem will be if voters don't give us access to the First Things First and conservation money," he said. "That's $450 million. If we don't get that, the only thing to make it up is cuts."

In November, voters will be asked to allow the Legislature to take the $124 million balance in the state's Growing Smarter fund, which goes toward land conservation, and put it in the general fund for other expenses. Another measure seeks to do the same with the $345 million in the First Things First account, an early-childhood health-and-education program.